Strengthened competitiveness yields higher earnings
2019 was a year of strong growth and improved profitability. Through price increases, improved product mix, higher volumes and cost savings, we have more than offset the significant headwinds over the past two years from higher raw material costs. Successful innovations and investments in sales and marketing have strengthened market positions and brands. As part of ongoing efforts to contribute to a sustainable and circular society, we established additional sustainability targets for packaging with a special focus on plastic packaging. We are working actively to break barriers and increase knowledge of hygiene and health.
“Successful innovations have strengthened our market positions and brands.”Magnus Groth
President and CEO
Strong growth and higher earnings
In 2019, the Group’s organic net sales increased 4.5% and net sales amounted to approximately SEK 129bn. All business areas reported good growth. Adjusted EBITA increased 22% and the adjusted EBITA margin rose 1.4 percentage points to 12.3%. Price increases, a better product mix, higher volumes and cost savings had a positive impact on earnings. The adjusted return on capital employed rose by 1.8 percentage points to 13.8%. Earnings per share increased 17% to SEK 13.12. The Board of Directors proposes an increase in the dividend of 9% to SEK 6.25 per share.
Our portfolio strategy provides a clear prioritization of the different categories and geographies for profitable growth. We have therefore prioritized investments in innovation and sales and marketing for market positions with high profitability. Activities to improve underperforming market positions continued and resulted in improved profitability in several markets.
Successful innovation activities have increased customer and consumer value and decreased the environmental impact. For example, during the year Tork Xpressnap Fit® was launched, a new napkin dispenser system, and TENA Silhouette, an incontinence product with superior protection that is similar to normal underwear.
During the year, we achieved cost savings of approximately SEK 1.1bn, of which SEK 456m was related to continuous cost savings and SEK 637m to the Group-wide cost-savings program. The program has been concluded and at the end of 2019, savings amounted to slightly above SEK 900m on an annualized basis. Through operational efficiency improvements, material rationalization and sourcing savings, we have achieved a more cost-efficient value chain.
Strong presence in emerging markets
We have a strong presence in China, Southeast Asia, Latin America, Eastern Europe and Russia. Emerging markets accounted for 37% of net sales, and organic net sales increased by 9.1%. In Latin America, we strengthened our market positions and organic net sales increased 10%. In China, our Asian subsidiary Vinda strengthened its position as market leader in tissue and launched Feminine Care with the Libresse brand during the year. In Asia, organic net sales increased 11%. Our ambition is that emerging markets will continue to grow as a share of net sales and earnings in the future.
Climate change has become even clearer in 2019. Essity has for many years worked with sustainability throughout our value chain: from responsible raw material sourcing, more efficient production with a smaller climate footprint, and sustainable solutions to customers and consumers. We have Group targets for the climate impact of innovations, materials and production. Our ambitious targets to reduce carbon emissions have been verified by the Science Based Targets initiative and are in line with the ambition of the Paris agreement to limit global warming. We have packaging targets that mean at least 85% of the company’s packaging is to be manufactured from renewable or recycled material by 2025. The new targets are part of Essity’s commitment within the framework of the Ellen MacArthur Foundation’s plastics initiative “New Plastic Economy” where Essity is an active member.
At the same time, we will continue to grow and this places demands on the need to make a transition and on new production methods and circular business models. Our investment in sustainable alternative fiber technology for tissue manufacturing is one example of this.
We also help our customers become more sustainable and circular. With our world-leading Tork brand, we launched tissue dispensers that reduce consumption while maintaining functionality. Essity’s Tork Papercircle®, the world’s first recycling service for paper hand towels, is one example of a unique circular offering that a growing number of customers joined in 2019.
Contribution to the UN Sustainable Development Goals
Our leading hygiene and health solutions contribute toward the UN’s goal for health and well-being. We support the UN Global Compact, a call for companies to adapt their strategies and operations to international principles concerning human rights, labor law issues, environment and anti-corruption.
We are working actively to break barriers and increase knowledge of hygiene and health, and activities during the year included educating children and young people in matters relating to hygiene.
Digitalization is rapidly changing purchasing behavior and the boundaries between different sales channels are being erased. We are developing our offerings to ensure they are available and attractive regardless of channel and platform with the aim of gaining a larger market share online than offline. Our online sales increased in 2019 by 16% to approximately SEK 13bn, corresponding to about 10% of net sales. We are also attracting customers through our digital solutions: Tork EasyCube, the first software solution for data-driven cleaning, and TENA Identifi, a digital solution that is revolutionizing continence care in elderly care operations. Digital solutions in production and logistics have increased efficiency, product quality and delivery reliability.
Employees drive successful change
Our employees are essential for our success and we strive continuously to develop the corporate culture and leadership as well as promoting lifelong learning to create the best possible conditions for continued success. Our corporate culture is characterized by care for customers, consumers, society and the environment as well as by courage, collaboration and commitment to results.
At Essity, we work every day to create value for our customers, consumers and shareholders and to contribute to a circular society and develop our employees. Improved earnings and cash flow have strengthened the balance sheet, which means we can again grow through acquisitions, with Medical Solutions as one prioritized area. Together with my colleagues around the world, I look forward to continuing to strengthen our competitiveness and striving for an even more successful and value-creating Essity.
President and CEO